Patent Docs

Apple Inc. v. Zipit Wireless, Inc. (Fed. Cir. 2022)

By Kevin E. Noonan --

Personal jurisdiction is one of those basic concepts in civil procedure that evokes strong memories in most lawyers, of their first year in law school, cases like International Shoe, Burger King, Helicopteros, and World-Wide Volkswagen, and perhaps even a bit of painful nostalgia for a time when they were maybe a little overwhelmed by the process of learning the law.  But there is a reason considerations like personal jurisdiction are part of the basic introduction to legal education, not the least of which is the real-world consequences that can arise involving them.  A case illustrating this reality was decided recently in Apple Inc. v. Zipit Wireless, Inc. (and as a bonus, the Federal Circuit expressly disclaimed a misapprehension by the District Court that it had enunciated a bright line rule regarding personal jurisdiction in patent cases).

The lawsuit on appeal was a declaratory judgment action brought by Apple in the Northern District of California, but the dispute predated the filing of Apple's complaint by several years.  As described in the Federal Circuit's opinion, Zipit approached Apple in 2013 regarding its assigned patents, U.S. Patent Nos. 7,292,870 and 7,894,837, which claimed "wireless instant messaging devices that use Wi-Fi to send and receive instant messages."  For the next three years, there were "several rounds of correspondence" between them as well as an in-person meeting in Cupertino, home of Apple corporate headquarters (and in the Northern District).  This correspondence and these communications involved whether Apple was willing to purchase the patents outright or license them, inter partes review proceedings involving the patents, and whether Apple was infringing based on technical details of its products (as well as the possibility of willful infringement).  These discussions were fruitless and Zipit filed a patent infringement lawsuit in the Northern District of Georgia on June 11, 2020, which Zipit two weeks later voluntarily dismissed without prejudice; this was followed by Apple filing the declaratory judgment suit that was the basis for this appeal nine days after Zipit voluntarily dismissed its Georgia action.

Because it is relevant to the personal jurisdiction question, the opinion set forth in some detail the history of the negotiations between the parties:

The record before the district court indicates that Zipit first traveled to Apple's Cupertino headquarters on December 3, 2013.  Following this in-person meeting, the parties had "at least" four "detailed calls" in December 2013, February 2014, and March 2014.  During these meetings and calls, Apple and Zipit discussed licensing the patents-in-suit and Apple's contentions that it "does not practice any Zipit patent claims" and that the "patents[-in-suit] are invalid."  Indeed, the parties went so far as to exchange competing drafts of a license agreement in August and September 2014 but ultimately did not reach any agreement.  Zipit traveled to Apple's Cupertino offices for a second in-person meeting to continue discussions on January 13, 2015.

Following the January 2015 meeting, Apple and Zipit exchanged numerous letters and emails throughout 2015 and 2016.  The first email, dated July 18, 2015, was sent by Mr. Stephen Risley (Zipit's outside counsel) regarding "Apple's Ongoing Infringement" of the patents-in-suit.  This email, directed to Apple's in-house counsel (Mr. Rudhir Patel) sought a "definitive response" from Apple regarding the parties' ongoing discussion of Apple's "purchase and/or license" of the patents-in-suit.  Referencing a discussion that had taken place the day prior, Mr. Risley also attached for Apple's review Zipit's opposition brief to a petition for IPR of the '837 patent.  He also noted that additional briefs as to other patents were forthcoming.  Mr. Risley concluded:  "I understand that Apple will review Zipit's IPR briefs and respond to Zipit in 1-2 weeks."

Apple responded two months later.  On September 25, 2015, Mr. Patel sent Mr. Risley a letter reiterating Apple's view that it "does not need a license" to the patents-in-suit "because Apple does not practice any" claims of the patents-in-suit and the claims are invalid.  In describing its grounds for noninfringement, Apple referred specifically to deficiencies in claim charts it had received from Zipit.  Apple also stated that its view that the claims were invalid was "confirmed by [its] review of the materials before the [Patent Trial and Appeal Board], and additional prior art not being considered" in the pending IPRs.

The discussions escalated.  On October 14, 2015, Mr. Risley sent a responsive letter addressed to Mr. Patel (with Apple's Cupertino office listed on the address line) regarding "Apple's Ongoing Willful Infringement" of the patents-in-suit.  In the letter, Mr. Risley conveyed Zipit's "continue[d]" belief that "Apple has and continues to willfully infringe" the patents-in-suit.  He concluded the letter by referencing willful infringement a second time:  "Zipit is confident that if it becomes necessary a Court will view your September 25, 2015 [letter] as nothing more than a transparent attempt by Apple to justify Apple's past, present, and future willful infringement of Zipit's patents."  Apple responded to this letter on December 8, 2015.  Mr. Risley sent another email to Mr. Patel five months later on April 7, 2016.  In this email, Mr. Risley informed Apple that the Board had "confirmed the patentability of all claims" of the patents-in-suit.  He concluded the letter by once again stating Zipit's belief "that Apple has and continues to infringe" the patents-in-suit.

The parties thereafter had another phone call on April 26, 2016, after which Mr. Patel, on May 2, 2016, responded in writing to Zipit's latest letter.  Mr. Patel reiterated Apple's belief that the patents-in-suit are invalid notwithstanding the Board's patentability determination in the IPR proceedings.  In response to Zipit's continued allegations of infringement, Apple explained that it had "repeatedly refuted those allegations" and that Zipit had failed to substantively respond to Apple's positions in this regard.  The letter concluded:  "Should Zipit substantively respond to Apple's explanation of why Apple's products do not fall within the scope of [the patents-in-suit] Apple will further consider Zipit's positions [citations to the record deleted throughout].

The District Court granted Zipit's motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2).  Although the District Court found that Apple had established "minimum contacts" that satisfied the California long-arm statute and were consistent with constitutional due process limitations on jurisdiction (and that Zipit had not rebutted Apple's "presumptively reasonable" showing thereof), the District Court held that the Federal Circuit had set forth a bright-line rule that "the exercise of personal jurisdiction . . . would be unconstitutional when '[a]ll of the contacts were for the purpose of warning against infringement or negotiating license agreements, and [the defendant] lacked a binding obligation in the forum,'" under Levita Magnetics Int'l Corp. v. Attractive Surgical, LLC, Case No. 19-cv-04065-JSW, 2020 WL 4580504, at *6 (N.D. Cal. Apr. 1, 2020), and Breckenridge Pharm., Inc. v. Metabolite Lab'ys, Inc., 444 F.3d 1356, 1364 (Fed. Cir. 2006).  This appeal followed.

The Federal Circuit reversed and remanded, in an opinion by Judge Stoll, joined by Judges Hughes and Mayer.  The Court began by acknowledging that the California long-arm statute extended "to the full extent allowed by the due process clauses of the United States Constitution" and thus limited its analysis accordingly.  Citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980), the opinion asserts that the issue in determining the appropriateness of finding due process arising in personal jurisdiction situations was whether a defendant's "conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there."  The three factors set forth in Supreme Court opinions involving personal jurisdiction set out in the opinion are (1) whether a defendant has "purposefully directed" activities at forum residents; (2) whether the claim to be adjudicated "arises out of or relates to" defendant's activities in the forum; and (3) whether asserting personal jurisdiction over the defendant would comport with "'traditional notions of fair play and substantial justice" under the World-Wide Volkswagen decision.  As the opinion sets out, "[t]he first two factors comprise the 'minimum contacts' portion of the jurisdictional framework . . . .," citing Jack Henry & Assocs., Inc. v. Plano Encryption Techs. LLC, 910 F.3d 1199, 1204 (Fed. Cir. 2018).  Under circumstances where minimum contacts are satisfied, the Court says, assertion of personal jurisdiction is presumptively reasonable except where the presumption is successfully rebutted by the defendant.

Here, the Federal Circuit, considering the litany of contacts Zipit had with Apple, a resident of the forum, agreed with the District Court that the minimum contacts standard had been satisfied.  This conclusion was supported by the Federal Circuit's finding of personal jurisdiction in Xilinx, Inc. v. Papst Licensing GmbH & Co., 848 F.3d 1346, 1356 (Fed. Cir. 2017), where defendant's activities consistent of two notice letters and a single visit with the accused infringer; the panel found "Xilinx [to be] virtually indistinguishable from the facts of this case, where Zipit likewise sent multiple communications to Apple in California and traveled twice to California to discuss allegations of infringement and the prospect of Apple licensing or purchasing the patents-in-suit."  (The opinion sets forth several other decisions supporting personal jurisdiction under analogous circumstances.)  The Federal Circuit rejected Zipit's argument that its conduct was not sufficient to raise a reasonable presumption that the minimum contacts standard had been satisfied based on the Court's decision in Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012, 1016 (Fed. Cir. 2009).  The panel found significant differences ("material factual distinctions") in the facts here and in Autogenomics (which are set forth in a footnote).

The opinion traced back the District Court's error in finding a bright-line rule against asserting personal jurisdiction based on notice letters to Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc, 148 F.3d 1355, 1360 (Fed. Cir. 1998), where the Federal Circuit said that "[p]rinciples of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum."  But while this sentiment and the policy arising from it are "no doubt relevant," according to the opinion, particularly to the extent it is directed towards settlement of incipient lawsuits, the panel rejected the argument by Zipit and the District Court's opinion that it reflects or establishes a patent-specific, bright-line rule, citing for example Trimble Inc. v. PerDiemCo LLC, 997 F.3d 1147, 1156–57 (Fed. Cir. 2021), and setting out several analogous personal jurisdiction decisions in other circuits over controversies in other areas of law.

But such a policy does not overcome the constitutional considerations set forth by the Supreme Court in Burger King and other personal jurisdiction cases, the panel opined.  To be perfectly clear, the opinion states that:

[T]he district court erred in reading our precedent as creating a bright-line rule that communications directed to "the attempted resolution" of the parties' dispute regarding the patents-in-suit trumps all other considerations of fairness and reasonableness.  Although some of our earlier precedent relying on Red Wing Shoe suggests that there is such a bright-line rule . . ., Supreme Court precedent (both pre- and post-Red Wing Shoe) has made clear that jurisdictional inquiries cannot rest on such bright-line rules—there are no "talismanic jurisdictional formulas."  Rather, "'the facts of each case must [always] be weighed' in determining whether personal jurisdiction would comport with 'fair play and substantial justice'" [citations omitted].

Having dispensed with this ground of error, the opinion then assessed whether Zipit satisfied the Supreme Court's counter rubric regarding whether a defendant could overcome the reasonable presumption of personal jurisdiction on the basis of:

[1] "the burden on the defendant," [2] "the forum State's interest in adjudicating the dispute," [3] "the plaintiff's interest in obtaining convenient and effective relief," [4] "the interstate judicial system's interest in obtaining the most efficient resolution of controversies," and [5] the "shared interest of the several States in furthering fundamental substantive social policies."

While recognizing that Zipit had asserted some evidence relating to some of these factors (e.g., that there would be some burden in litigating in California because the company, its officers, and employees including inventors resided in South Carolina), on balance Zipit did not assert sufficient facts to convince the Federal Circuit that it had rebutted the reasonable presumption that the District Court could properly exercise personal jurisdiction over Zipit.  (It didn't help Zipit's argument that their executives had travelled to the district twice to meet with Apple during licensing negotiations.)  Even Zipit's filing its Georgia lawsuit was evidence that it should have "reasonably foreseen" that Apple would respond with a declaratory judgment suit according to the Federal Circuit.

While acknowledging that "we have no doubt that Zipit's initial contacts with California can be fairly viewed as attempting to settle its dispute with Apple out of court, e.g., by way of a patent license," which was "an important fact we consider and weigh in Zipit's favor," the opinion noted that "Zipit's communications with Apple arguably went further, extending over the course of several years and reaching beyond license negotiations to include the sale of its patents."  While this attempt at settlement was on Zipit's side of the scales under the Burger King test, the panel held that, on balance, these considerations did not counterbalance their opinion that Zipit had not rebutted the reasonable presumption that the minimum contacts standard had been satisfied and that the District Court could exercise personal jurisdiction over Zipit within the bounds of constitutional due process.

Apple Inc. v. Zipit Wireless, Inc. (Fed. Cir. 2022)
Panel: Circuit Judges Hughes, Mayer, and Stoll
Opinion by Circuit Judge Stoll

Several Law Firms Close Russian Offices

By Donald Zuhn --

According to a number of online reports, several global law firms have decided to close their Russian offices in response to Russia's invasion of Ukraine.  Among the firms that are reported to have closed their Russian offices (or that are in the process of doing so) are:

• Allen & Overy
• Baker Botts
• Borenius
• Bryan Cave Leighton Paisner
• Clifford Chance
• Debevoise & Plimpton
• Dechert
• Eversheds Sutherland
• Freshfields Bruckhaus Deringer
• Gowling WLG
• Herbert Smith Freehills
• Hogan Lovells
• Latham & Watkins
• Linklaters
• Morgan, Lewis & Bockius
• Norton Rose Fulbright
• Squire Patton Boggs
• White & Case
• Winston & Strawn

Several other firms are reported to have suspended their operations in Russia, including:

• Akin Gump Strauss Hauer & Feld
• Cleary Gottlieb Steen & Hamilton
• Mannheimer Swartling

Information regarding the impact of Russian's invasion of Ukraine on law firm operations can be found here:

• "Law Firms Respond to Russia's Invasion of Ukraine: How the Legal Industry & the Public Can Help," National Law Review, March 13, 2022.
• John Malpas and Madeline Anderson, "Hogan Lovells latest to announce Moscow office closure as five more US firms reveal Russia withdrawal plans," Global Legal Post, March 11, 2022.
• Sarah Martinson, "4 More BigLaw Firms Close Offices In Russia," Law360, March 11, 2022.
• David Thomas, "Factbox: Global law firms in Russia react to Ukraine invasion," Reuters, March 11, 2022.
• Megan Tribe, "White & Case to Close Moscow Office, Joining Other Exits," Bloomberg Law, March 11, 2022.
• Jonathan Ames, "Freshfields, Eversheds and Gowling close their Russian practices," The Times, March 10, 2022.
• James Booth, "Allen & Overy and Clifford Chance to close Moscow offices as law firms rush for exit in Russia," Financial News, March 10, 2022.
• Louis Goss, "Clifford Chance to wind down Moscow offices amid scrutiny over law firm's links to oligarchs," City A.M., March 10, 2022.
• Kate Ackley, "Big K Street shops will close offices in Russia," Roll Call, March 9, 2022.
• Lachlan Markay and Sarah Mucha, "Big Law exits Russia," Axios, March 9, 2022.
• Rachel Rippetoe, "6 BigLaw Firms Exit Russia As Ukraine War Rages On," LAW360 Pulse, March 9, 2022.
• David Thomas, "More law firms exit Moscow as Russia wages war in Ukraine," Reuters, March 9, 2022.
• Meghan Tribe, "Five Big Law Firms Close Moscow Offices as Ukraine War Rages," Bloomberg Law, March 9, 2022.

Life Sciences Business Leaders Call for Immediate and Complete Economic Disengagement from Russia

By Donald Zuhn –-

In an open letter posted on February 26, six life sciences business leaders called on other members of their industry "to cease all business involvement in Russia."  The authors of the open letter included Meg Alexander, Chief Corporate Affairs Officer, Ovid Therapeutics; Paul Hastings, President and CEO, Nkarta Therapeutics; Peter Kolchinsky, Managing Partner, RA Capital Management, LP; Jeremy Levin, Chairman and CEO, Ovid Therapeutics; Ted Love, President and CEO, Global Blood Therapeutics; and John Maraganore, Founding CEO, Alnylam Pharmaceuticals.

The authors of the letter encouraged "employees at all levels of all industries in all countries" to add their names to letter, and urged them to share the letter with their colleagues, noting that "[e]ven if the executives who lead your company have not signed this pledge yet, your signature signals your support of them to do so."  As of 11:00 am ET today, the letter had collected 860 signatories (a full list of the signatories can be found here).

The authors begin their letter by stating that they "are appalled by the unprovoked war started by Russia against its neighbor Ukraine," adding that "[t]his barbaric act will lead to substantial loss of life, trauma to millions of people, and the dislocation of civil society in a nation that has repeatedly expressed its peaceful intentions."  The authors conclude that "this is a criminal act deliberately committed by Russia," which will have ramifications that "touch the entire globe."

Declaring that they "reject the actions ordered by President Putin and the failure of those who enable and embolden him," including "the captains of Russia's industries" who support him and stand by him, the authors urge those Russian business leaders "to collectively steer Russia towards peace."  However, noting that "[w]e must take action to make clear our abhorrence of Russia's actions," and arguing that "[i]mmediate and complete economic disengagement is required," they "call on all members of our industry, and others, to cease all business involvement in Russia" (including "other countries and their elites should they join Russia in its invasion of Ukraine").  In particular, the authors pledge to:

• Cease investment in Russian companies and new investment within the borders of Russia
• Reject investment from Russian funds
• Halt collaboration or service agreements with Russian companies
• Except for food and medicines, halt trade in goods with Russian companies

The authors note that the above actions would be reversed "upon the restoration of peace and democracy in a sovereign Ukraine."

The authors also ask their colleagues "in all the industries in the United States, including software, social media, IT, agriculture, legal and financial services, medical devices, medical instruments, and minerals, to take the same steps and withhold assistance to oligarchs who enable this war."

The authors conclude their letter by commending "the brave Russians opposing their government at home" and expressing admiration for their courage, and declaring that:

We stand with our colleagues, friends, and families in Ukraine bravely fighting the invading army.  We support you, and you are not alone.

Season's Greetings from Patent Docs

The authors and contributors of Patent Docs wish their readers and families a Happy Holidays!  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on December 26th.

The authors and contributors of Patent Docs wish their readers and families a Happy Holidays!  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on December 26th.

The authors and contributors of Patent Docs wish their readers and families a Happy Holidays!  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on December 26th.

University of South Florida Research Foundation, Inc. v. Fujifilm Medical Systems U.S.A., Inc. (Fed. Cir. 2021)

By Kevin E. Noonan --

The issue of standing can be outcome-determinative:  without it, no matter how worthy a party's position or arguments, a court will not consider them without standing.  The vagaries of standing and its importance were illustrated this fall in the Federal Circuit's opinion in University of South Florida Research Foundation, Inc. v. Fujifilm Medical Systems U.S.A., Inc.*

The action arose over a dispute involving an invention described in the opinion as "Workstation-User Interface for Digital Mammography."  This invention was initially disclosed by faculty at the University of South Florida who assigned their rights to the University.  A later assignment of what is presumably a "new and improved" version of the invention was assigned by these inventors five years later, leading to filing an application resulting in U.S. Patent No. 6,630,937, entitled "Workstation Interface for Use in Digital Mammography and Associated Methods."

The details of the relationship between the University and University of South Florida Research Foundation (USFRF) are obscured by redactions, but under a nunc pro tunc license agreement (putatively) relating to the '937 patent between these Florida entities, the USFRF filed suit against Fujifilm for infringement.  USFRF asserted a chain of interest in the patent in the complaint running from the inventors to USF to USFRF:

The inventors of the '937 patent assigned their rights to the University of South Florida in Tampa, Florida.  The University of South Florida in turn assigned their rights to the '937 patent to the Plaintiff in this lawsuit, namely the University of South Florida Research Foundation, Inc. ("USFRF").  USFRF is currently the owner of the entire right, title and interest in United States Patent No. 6,630,937.

Nevertheless, Fujifilm moved for summary judgment that USFRF lacked standing to sue, arguing that the license agreement did not transfer "all substantial rights" to the Foundation for it to bring suit by itself.  The defect, which USF attempted to "correct" if permitted to file a Second Amended Complaint, was that rather than assigning all right, title, and interest to the Foundation, the University had just granted an exclusive license.  The District Court dismissed the action (without prejudice) under Federal Rule Civil Procedure 12(h)(3) for "lack of both statutory and constitutional standing"; as explained in a footnote, "statutory standing" referred to 35 U.S.C. § 281, which the Federal Circuit characterized as "simply a statutory requirement" rather than a separate form of standing.  The defects in the license relied upon by the District Court included a lack of "an exclusive granting of the right to defend the patent to USFRF," the lack of any language regarding "the transference of the right to sue," and the lack of any provisions that "limit[ed] USF's ability to bring suit for alleged infringement."  Importantly, the District Court also considered the license's "grantback" provisions that permitted the University to practice the invention for "internal research, clinical, and education purposes" as standing-precluding provisions.  The District Court's constitutional (Article III) standing decision was based on USFRF's refusal to disclose the invention disclosure referred to in the license, which the Court held was a "necessary document"; another consideration was a question of whether the right to sue had been transferred prior to filing the complaint.  USFRF appealed.

The Federal Circuit vacated the District Court's decision dismissing the action on standing grounds and remanded, in an opinion by Judge Stoll, joined by Chief Judge Moore and Judge Reyna.  The issue, framed by the Court's recitation of a litany of its precedent, is whether "an exclusive license is tantamount to an assignment," which depends on "the intention of the parties [to the license agreement] and . . . the substance of what was granted," citing Alfred E. Mann Found. for Sci. Rsch. v. Cochlear Corp., 604 F.3d 1354, 1358–59 (Fed. Cir. 2010), quoting Mentor H/S, Inc. v. Med. Device All., Inc., 240 F.3d 1016, 1017 (Fed. Cir. 2001).  The panel noted that while there had been decisions where the rights that needed to be transferred to establish standing to sue had been discussed, the Court had never "established a complete list of the rights that must be examined to determine whether a patentee has transferred away sufficient rights to render another party the owner of a patent."  Instead the Court had adopted a "totality of the agreement" approach, wherein "[a]mong the factors that we consider, the exclusive right to make, use, and sell, as well as the nature and scope of the patentee's retained right to sue accused infringers are the most important considerations in determining whether a license agreement transfers sufficient rights to render the licensee the owner of the patent," citing Diamond Coating Techs., LLC v. Hyundai Motor Am., 823 F.3d 615, 619 (Fed. Cir. 2016) (quoting Alfred E. Mann).

Applying this precedent, the panel compared the rights transferred here with rights transfers deemed sufficient to satisfy the standing requirements.  In Alfred E. Mann, for example, the licensor's retention of the right to sue for infringement was "the most important factor in determining whether an exclusive license transfers sufficient rights to render the licensee the owner of the patent."  "[A] broad right to decide whether to bring suit and to control litigation is thoroughly inconsistent with an assignment of the patents-in-suit to [a licensee]" according to that opinion, thereby setting out a well-defined basis for finding lack of standing.  Similar considerations applied in AsymmetRx, Inc. v. Biocare Med., LLC, 582 F.3d 1314, 1321 (Fed. Cir. 2009), where the patentee retained "substantial interests in the patents-in-suit," including the right to sue for infringement.  Finally, in Diamond Coating, limitations on the licensee (including prohibition against licensing the patent without licensor's permission, a  grantback license that included a right to sell patented products and control over decisions regarding enforcement) precluded the licensee from having standing to sue on its own behalf.

Here, the panel opined, the District Court was not incorrect in finding that USFRF was not a patentee as defined in § 281 and could not sue without joining USF.  The Court's decision was grounded in the first instance on an absence in the license of transfer from USF to USFRF of the right to sue on the patent.  As synthesized by the Federal Circuit, "[t]he agreement's silence on the right to sue accused infringers does not show an intent to transfer that right.  Rather, it shows that USF retained the important right to enforce the patent against accused infringer," and the panel decision was thus consistent with their Alfred E. Mann, AsymmetRx, and Diamond Coating precedent.  Additional features of the license (including redacted provisions on reservation of undisclosed rights and a weighting of infringement suit recovery amounts) supported this conclusion.  And the panel rejected USFRF's attempt to rely on their decision in Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245 (Fed. Cir. 2000), regarding a transferred royalty-free right to sublicense.

Turning to Article III standing, the Court applied Second Circuit law relating to USFRF's failure to disclose the invention disclosure and failure to provide evidence of when the license agreement was signed.  On this issue the Federal Circuit held that the District Court erred in deciding that production of the invention disclosure was the only way USFRF could satisfy the requirement that the license covered the '937 patent, because doing so would involve waiver of attorney-client privilege and work-product protections.  The Court found sufficient disclosure in the license of the equivalence of the invention disclosure and the '937 patent to establish that the license extended to that patent.  According to the opinion, "[t]he correlation of the patent application serial number listed on the assignment and the face of the patent should have been sufficient in this case to prove that the license agreement covered the '937 patent."

Also, the Federal Circuit held that the District Court erred in finding lack of Article III standing due to the undated nunc pro tunc license that failed to show when it was signed.  According to the panel, "[e]ven if the license agreement was signed after the filing of the complaint, USFRF would have held at least one exclusionary right in the patent under [a Revenue Allocation Agreement previously entered into by the parties]."  Constitutional standing arises when a party holds at least one such exclusionary right under the Court's precedents, including WiAV Sols. LLC v. Motorola, Inc., 631 F.3d 1257, 1265 (Fed. Cir. 2010);  Morrow v. Microsoft, 499 F.3d 1332, 1340–41 (Fed. Cir. 2007); and Intell. Prop. Dev., Inc. v. TCI Cablevision of Cal., Inc., 248 F.3d 1333, 1347 (Fed. Cir. 2001), according to the opinion.

Whether USFRF can cure the deficiencies in statutory standing under § 281 will be the issue the District Court will be asked to decide on remand, because as explained in the opinion "the district court's dismissal was predicated on [USFRF's lack of] constitutional standing" and thus did not consider USFRF's attempt to cure in its Second Amended Complaint.  But both USF and USFRF believed the Foundation had standing to sue, and the District Court's decision on statutory requirements for standing and the Federal Circuit's opinion illustrate how wrong parties can be in arranging their agreements to be consistent with the rubrics discussed in this opinion.

University of South Florida Research Foundation, Inc. v. Fujifilm Medical Systems U.S.A., Inc. (Fed. Cir. 2021)
Panel: Chief Judge Moore and Circuit Judges Reyna and Stoll
Opinion by Circuit Judge Stoll

* The opinion was handed down under seal on October 22nd and then reissued on November 23rd in partially redacted form.

Happy Thanksgiving from Patent Docs

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 28th.

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 28th.

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  Publication of Patent Docs will resume on November 28th.

Van Buren v. United States (2021)

Supreme Court Narrows Federal "Anti-Hacking" Law to Exclude Enforcement Against Those Who Use Otherwise Authorized Access for Improper Purpose

By Joshua Rich --

There is a well-worn legal maxim that "hard cases make bad law."  In deciding Van Buren v. United States today, the Supreme Court was faced with the opposite problem: bad laws[i] make hard cases.  Specifically, in a 6-3 decision, the Court found that the Computer Fraud and Abuse Act ("CFAA") does not extend to an individual's accessing information over the internet for an improper purpose, so long as the individual would be entitled to access for a proper purpose.  There's no question that interpreting the opaquely-worded CFAA forced the Court to choose between two bad options, with a parade of horribles on both sides; it chose the option that clearly decriminalizes everyday behavior (but also would allow abusive use of access that individuals have solely for work purposes).

The CFAA (codified at 18 U.S.C. § 1030) was enacted in 1986, based on a number of hacking incidents as well as -- allegedly -- Reagan White House viewings of the movie "War Games."  It was originally intended to deter hacking into government computers, financial institution networks, and other "protected computers."  For that reason, it established that a person commits a crime when he or she "intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains . . . information from any protected computer."  In that context, "the term 'exceeds authorized access' means to access a computer with authorization and to use such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter."  And the term "protected computer" includes any computer "which is used in or affecting interstate or foreign commerce or communication, including a computer located outside the United States that is used in a manner that affects interstate or foreign commerce or communication of the United States."  With the advent of the internet and its expansion into every part of our lives, however, the portion of the law prohibiting exceeding access to protected computers has expanded the scope of the CFAA immensely.

Against the backdrop of this broad law came Sergeant Nathan Van Buren and a set of facts seemingly out of Southern Gothic lore.  Sergeant Van Buren was a financially troubled officer in the Cumming, Georgia police department.  He (along with the rest of the department) had been warned to stay away from Andrew Albo, a local widower in his sixties with a penchant for much younger women, including prostitutes.  But instead of staying away, Van Buren befriended Mr. Albo during an arrest for providing alcohol to a minor and helped him "handle" disputes with young women.

Seeing an opportunity for help with his financial woes, Van Buren told Albo -- falsely -- that he had substantial medical debts.  He then asked Albo for a loan.  But instead of appreciating Van Buren's position, Albo went to the county sheriff's department with recordings of the request and told them Sergeant Van Buren was shaking him down.  The FBI got involved and decided to run a sting operation.  First, it had Albo ask Van Buren for help running drugs, but the police sergeant refused.  Then, it had Albo ask for information about a female friend that Albo had allegedly met at a strip club (specifically, information regarding whether she was an undercover police officer).  Albo offered money in exchange for Van Buren accessing Georgia and national criminal databases to run the woman's license plates.  Van Buren accepted the money and ran the plates, then texted Albo when he had done so.  The FBI and Georgia Bureau of Investigation then swept in and arrested Van Buren, who admitted to all of the facts and agreed what he had done was wrong.

The local U.S. Attorney charged Van Buren with honest services fraud and unauthorized access to the government databases in violation of the CFAA.  He was convicted on both counts, but the Court of Appeals reversed the honest services fraud verdict on the basis of improper jury instructions.  Van Buren then took the CFAA conviction to the Supreme Court.[ii]  Specifically, the Supreme Court considered whether a person who is authorized to access information on a computer for certain purposes violates the CFAA if he accesses that information for an improper purpose.

The six-Justice majority, in an opinion written by Justice Barrett, decided that the CFAA would not extend so far.  The majority started with the text of the CFAA, and believed that the act was structured so that the two options for the offense (access with authorization or access exceeding the scope of authorization) would be parallel in a binary "gates-up-or-down inquiry."  That is, because the only question for the first part was whether the accesser had authorization or not, the second part should be limited to the question of whether the accesser had authorization to access that information in any circumstance or not.  In that sense, Justice Barrett used a physical analogy for the scope of authorization, describing the prohibition as relating to "particular areas of the computer – such as files, folders, or databases – to which their computer access does not extend."  In doing so, she rejected the government's assertion that the majority's interpretation would read the word "so" (in the phrase "entitled so to obtain or alter") from the statutory definition of "exceeds authorized access."  She indicated that the word "so" could be understood to distinguish the situation where an individual is not entitled to see the same information in non-computer-based means (such as, hypothetically, if a person were entitled to see a personnel file in hard copy by not electronically).

The majority also relied on the history of the CFAA's enactment and a parade of horrible possible applications of the law to reject the government's reading that it covers access for an improper purpose.  The first version of the law that the CFAA replaced explicitly considered the purpose of access and the CFAA did not.  However, the legislative history (which neither the majority nor the dissent mentions) expressly stated that the change was not intended to be substantive.  In addition, the majority noted that the CFAA as read by the government could be understood to encompass everyday violations of terms of service, such as use of a work computer for personal reasons or embellishing online-dating profiles or using a pseudonym on Facebook.  For all of these reasons, the majority held that exceeding authorized access related to computer structures, not terms (or purposes) of access.

Justice Thomas, writing in dissent and joined by Chief Justice Roberts and Justice Alito, disagreed with the outcome of the case primarily based on settled property law considerations.  He saw nothing more definitive about the majority's reading -- any more of a "gates-up-or-down" approach -- than if exceeding authorized access considered what the circumstances of authorization were.  In doing so, he analogized to property law, which generally protects against unlawful entry and unlawful use of property after entry.  And he saw nothing more reasonable in decriminalizing access in all circumstances if there is a single exception than prohibiting such access if an authority had explicitly said so.  For example, the majority's reading decriminalizes an IT administrator's actions in deleting every file on a computer minutes before resigning.  Thus, Justice Thomas noted, the majority's reading of the CFAA constitutes a substantial narrowing of the law.

As a practical matter, the narrow reading of the CFAA shifts power from employers and the government to employees and website visitors.  The CFAA previously provided an arrow in the quiver of employers to discourage employees from misusing their access to information or misappropriating trade secrets (it was another criminal offense that could lead to an arrest before the employee disseminated the trade secrets beyond the doors of the company).  It also served as the primary basis for the federal government to charge employees who used IRS, Social Security, or law enforcement databases to stalk private citizens.  On the other hand, it also chilled some investigative reporting and whistleblowing because of violation of terms of service for websites.  Thus, every person who shops on their company computer or uses a fake e-mail address to avoid spam from a website can breathe a little easier.  And we can all hope that Congress will take the Court's decision as a reason to rewrite the CFAA and bring it into the internet age.

Van Buren v. United States (2021)
Opinion by Justice Barrett, joined by Justices Breyer, Sotomayor, Kagan, Gorsuch, and Kavanaugh; dissenting opinion by Justice Thomas, joined by Chief Justice Roberts and Justice Alito

[i] Columbia University Law School professor Tim Wu called the CFAA the "worst law in technology" in a 2013 New Yorker article.

[ii] See United States v. Van Buren, 940 F.3d 1192 (11th Cir. 2019).

Senators Ask President to Prioritize Appointment of IP Officials

By Donald Zuhn --

In a letter sent to President Joseph Biden at the end of March, Sen. Patrick Leahy (D-VT), Chairman of the Senate Subcommittee on Intellectual Property, and Sen. Thom Tillis (R-NC), Ranking Member of the Subcommittee on Intellectual Property, asked the President to "prioritize the appointment of intellectual property officials within the Executive Branch over the coming weeks."

Senators Leahy (at right) and Tillis (at left) note that "[e]nsuring that the intellectual property of creative artists, inventors and small businesses is meaningfully protected" constitutes a top priority for them, and point out that IP-intensive industries account for 45 million jobs and more than 38 percent of U.S. GDP.  Recognizing the importance of IP to the Nation's culture and economy, the Senators ask the President to "move expeditiously to fill key Executive Branch positions that promote and protect intellectual property rights at home and abroad."  Among those key positions for the Senators are the Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office, the Intellectual Property Enforcement Coordinator, and the Chief Innovation and Intellectual Property Negotiator within the Office of the U.S. Trade Representative.

The Senators close their letter by indicating that "IP-intensive industries are poised to continue to be an engine for growth," especially in view of the damage to the economy caused by the coronavirus, and expressing their commitment to with the President and his Administration "to swiftly confirm qualified nominees for these critical positions."

President Biden's selection for Secretary of Commerce, former Rhode Island Governor Gina Raimondo, was confirmed by the Senate on March 2, 2021.  The Administration has yet to nominate an Under Secretary of Commerce for Intellectual Property.

IPO Sends Letter on IP Law and Policy to President-Elect and Vice President-Elect

By Donald Zuhn --

Last month, Intellectual Property Owners Association (IPO) President Daniel J. Staudt sent a letter on behalf of the IPO to President-Elect Joe Biden and Vice President-Elect Kamala Harris "to recommend that intellectual property (IP) law and policy be priorities in your administration."  The letter states that:

The IP system is fundamental to the nation's economic growth and job creation and to our global competitiveness.  The importance of innovation is clearer than ever at this moment in our nation's history as we face challenges such as the coronavirus pandemic and related economic instability, the climate crisis, and the need to ensure diverse and inclusive representation of viewpoints.

With respect to the COVID-19 pandemic, the letter notes that "[t]he ability to leverage and build upon scientific research conducted over many years, made possible by the IP system, enabled industry to expedite the vaccine development process."  The letter also points out that developments with respect to personal protective equipment and innovative computer-implemented technologies that have allowed us to stay connected during the pandemic were also the result of years of investment in innovation.

As for the climate crisis, the letter states that "IP is an integral part of developing new global environmental policies aiming for a more sustainable lifestyle based on green technologies," and expresses support for the incoming administration's pledge to invest $400 billion in clean energy and innovation.

The letter also declares that "[c]losing the diversity gap in innovation is also vitally important to our economic growth and global competitiveness," noting that women, people of color, and other minority groups are vastly underrepresented in the patent system.  The letter points out that recent "scholarship indicates that increasing participation in inventing by underrepresented groups could increase U.S. GDP by as much as 4.4%," and suggests that "[i]t is imperative that the public and private sectors work together to close this gap and harness our country's potential to innovate at greater levels than ever before."

Included with the letter is an Appendix providing several IP issues that "threaten sound innovation policy in the U.S. and worldwide," including clarifying patent subject matter eligibility; protecting trade secrets; ensuring predictable legal systems for all industries and technologies; addressing counterfeiting and trademark infringement; and providing high quality, enforceable IP rights and predictable legal systems in the U.S. and abroad.

With respect to subject matter eligibility, the letter notes that the IPO "continue[s] to believe that legislative action is needed" to address Supreme Court decisions that have "detrimentally affected areas such as precision medicine & artificial intelligence and risk[] a chilling effect on further developments and investment in these critical technologies."  On the issue of trade secret protection, the letter states that "[i]nadequate protection of trade secrets abroad harms not only companies whose property is stolen, but also the country where the theft occurs, because companies are then less likely to form joint ventures and make high-value investments in those countries."

The letter also argues that unfounded assertions continue to be made that IP rights constitute a barrier to innovation in order to justify compulsory licenses and forced technology transfer.  In particular, the letter states that:

IPO members continue to witness concerted efforts to weaken intellectual property rights in the name of development, access to health, and environmental concerns.  Intellectual property rights have been unfairly portrayed as a barrier to technology transfer based on arguments that they limit availability of technologies and make them more expensive to secure.  The threat of intellectual property erosion, however, actually increases the cost of technology and slows its adaptation and deployment.

The letter notes that the IPO continues to strongly oppose compulsory licensing of intellectual property rights with respect to all industries and technologies, adding that "[a]lthough IPO recognizes that compulsory licenses of IP rights may be legally permissible in limited and rare situations, IPO believes that licensing of IP rights is best accomplished through voluntary efforts."

The Appendix concludes by touching on the issue of backlogs and other bars to securing IP protection, noting that "[i]ncreasing global competition drives IPO members to innovate faster than ever before, and in many cases product life cycle times are becoming extremely short" (as, for example, the unprecedented short timeline in which multiple COVID-19 vaccines have been developed).  In view of shorter product life cycles, the letter contends that "debilitating application backlogs at patent and trademark offices are at odds with the pace of innovation."

Season's Greetings from Patent Docs

The authors and contributors of Patent Docs wish their readers and families a Happy Holidays!  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on December 27th.

The authors and contributors of Patent Docs wish their readers and families a Happy Holidays!  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on December 27th.

Happy Thanksgiving from Patent Docs

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on November 28th.

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on November 28th.

The authors and contributors of Patent Docs wish their readers and families a Happy Thanksgiving.  It is also our hope that all of our readers, along with their families and friends, stay safe during the holiday.  Publication of Patent Docs will resume on November 28th.

Tormasi v. Western Digital Corp. (Fed. Cir. 2020)

By Donald Zuhn --

Last month, the Federal Circuit affirmed an Order by the U.S. District Court for the Northern District of California, finding that Appellant Walter A. Tormasi lacked the capacity to sue under Federal Rule of Civil Procedure 17(b).  Mr. Tormasi had filed suit against Appellee Western Digital Corp., asserting that Western Digital had infringed claims 41 and 61-63 of U.S. Patent No. 7,324,301.

Mr. Tormasi is an inmate in the New Jersey State Prison, which has a "no-business" rule prohibiting inmates from commencing or operating a business without prior approval from the Administrator (i.e., the chief executive officer of any State correctional facility within the New Jersey Department of Corrections).  Without the Administrator's prior approval, Mr. Tormasi formed an intellectual property holding company, Advanced Data Solutions Corp., appointing himself as Director, Chief Executive Officer, President, and Chief Technology Officer.  Mr. Tormasi then filed a patent application that issued as the '301 patent (which relates to the art of dynamically storing and retrieving information using nonvolatile magnetic random-access media, specifically hard disk drives).  Acting as Director, Mr. Tormasi transferred the rights in the patent application to himself in exchange for all shares of Advanced Data Solutions stock, then transferred the application back to himself, and then twice transferred the '301 patent to himself.  In January 2019, Mr. Tormasi filed suit against Western Digital for infringement of the '301 patent.  Western Digital moved to dismiss the suit for lack of standing and capacity to sue, and the District Court issued an Order, finding that Mr. Tormasi lacked capacity to sue in view of his violation of the no-business rule.

On appeal, Mr. Tormasi asserted that his lawsuit could not be construed as an unpermitted business activity because he sought to enforce his personal intellectual property rights.  A majority of the Federal Circuit disagreed, stating that Mr. Tormasi's attempt to file the lawsuit as a personal action "merely repackages his previous business objectives as personal activities so he may sidestep the 'no business' regulation," and finding the "characterization of his suit as personal, as opposed to related to business, to be without merit."  The majority found that "[b]ecause New Jersey prohibits inmates from pursuing a business, and because of Mr. Tormasi's repeated attempts to profit as a business from the ['301] patent, the District Court did not err when it determined that Mr. Tormasi lacked the capacity to bring this suit for patent infringement."  The majority therefore affirmed the District Court's Order.

Writing in dissent, Judge Stoll asserted that Mr. Tormasi had not waived his argument that the "no business" rule did not limit the scope of an inmate's capacity to sue under New Jersey law, as the majority had found.  Judge Stoll explained that Mr. Tormasi's argument that "imprisonment status or prison behavior is irrelevant to the capacity-to-sue standard," had "fairly preserved" his legal argument that the "no business" rule cannot generally limit the scope of an inmate's capacity to sue.  Judge Stoll, therefore, concluded that the "no business" rule should not have been at issue at all.

Tormasi v. Western Digital Corp. (Fed. Cir. 2020)
Nonprecedential disposition
Panel: Circuit Judges Wallach, Chen, and Schall
Opinion per curiam; dissenting opinion by Circuit Judge Stoll

Federal Trade Commission v. Qualcomm Ins. (9th Cir. 2020)

Ninth Circuit Overturns District Court Judge Lucy Koh's Decision That Qualcomm's Licensing and Chip Sales Practices Are Antitrust Violations

By Kevin E. Noonan --

The Federal Trade Commission has a history of taking positions and aggressively pursuing them, despite getting reversed (sometimes continually) by Circuit Courts (see "Reverse Payments in Generic Drug Settlements"), although occasionally finding an ally in the Supreme Court (see "Federal Trade Commission v. Actavis, Inc. (2013)").  Most recently, the FTC has waged a campaign against chipmakers involved in the cell phone industry, and their most spectacular victory was in convincing U.S. District Court Judge Lucy Koh (Northern District of California) to impose a worldwide injunction against Qualcomm.  That victory was short-lived, however, with the Ninth Circuit ruling on Tuesday that Qualcomm's business practices, while aggressive did not rise to antitrust violations.  (The result may have been telegraphed by the Court in granting a stay on the injunction, where it said that the "district court's order and injunction [was] either 'a trailblazing application of the antitrust laws' or 'an improper excursion beyond the outer limits of the Sherman Act.'")

As set forth in the opinion, Qualcomm has been successful in making chips used in code division multiple access ("CDMA") and premium long-term evolution ("LTE") cellular modern technology, which it sells to original equipment manufacturers (OEMs).  In addition, the company licenses its cellular standard essential patents ("SEPs"), non-cellular SEPS, and non-SEPs to OEMs as well as rival chipmakers.  These chips and their licensed technologies that "enable[] cellular devices to practice CDMA and premium LTE technologies and thereby communicate with each other across cellular networks"; in a footnote, the Court explains that the company has two separate divisions, its Technology Licensing arm responsible for licensing its patent portfolios and establishing licensing rates, and its CMDA Technology division that cells modem chips.  These divisions distinguish Qualcomm from other companies in this space (including Nokia and Ericsson, for example) who license their SEP portfolios but don't also sell modem chips, and other chip makers (such as Samsung) who don't have SEP portfolios to license.  The opinion also acknowledged that Qualcomm had "monopoly power" (90% market share) over the CMDA modem chip market between 2006-2016 and 70% market share over the LTE chip market, and accordingly charged "monopoly prices" on its chips.

According to the opinion, Qualcomm deals exclusively with OEMs, charging "a percentage of the end-product sales price," which the Court says is a "practice not unique to Qualcomm."  Interestingly (perhaps as an example of the law of unintended consequences), the practice arose in response to the Supreme Court's decision on patent exhaustion in Quanta Comput., Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008). The rationale is that sales to suppliers of OEMs would exhaust all patent rights in the chips, and because such suppliers do not need licenses to Qualcomm's SEP and other standard portfolios the company would not be able to collect them from their OEM customers.

Qualcomm had not refused to license rival chipmakers, according to the opinion, offering them what amounts to a covenant not to sue provided that they do not sell their chips to unlicensed OEMs.  Qualcomm has a "no license, no chips" policy to enforce these arrangements, refusing to sell the OEMs who do not license their SEP portfolios.

The opinion also notes that because Qualcomm is not itself an OEM, it is not in competition with OEMs; as stated in the opinion, "these OEMs are Qualcomm's customers" (emphasis in opinion), which changes how the antitrust laws are applied to Qualcomm's behavior.

As might be expected, Qualcomm's rivals complained about its business practices and the Federal Trade Commission sued, alleging violation of § 5(a) of the FTC Act, 15 U.S.C. § 45(a), and §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2.  The FTC contended that Qualcomm's business practices "unreasonably restraining trade in, and unlawfully monopolizing, the code division multiple access ("CDMA") and premium long-term evolution ("LTE") cellular modern chip markets."  The District Court found that "Qualcomm's licensing practices are an unreasonable restraint of trade under § 1 of the Sherman Act and exclusionary conduct under § 2 of the Sherman Act."  The District Court based its decision on "five mixed findings of fact and law" according to the opinion:

(1) Qualcomm's "no license, no chips" policy amounts to "anticompetitive conduct against OEMs" and an "anticompetitive practice[] in patent license negotiations"; (2) Qualcomm's refusal to license rival chipmakers violates both its FRAND commitments and an antitrust duty to deal under § 2 of the Sherman Act;12 (3) Qualcomm's "exclusive deals" with Apple "foreclosed a 'substantial share' of the modem chip market" in violation of both Sherman Act provisions; (4) Qualcomm's royalty rates are "unreasonably high" because they are improperly based on its market share and handset price instead of the value of its patents; and (5) Qualcomm's royalties, in conjunction with its "no license, no chips" policy, "impose an artificial and anticompetitive surcharge" on its rivals' sales, "increas[ing] the effective price of rivals' modem chips" and resulting in anticompetitive exclusivity.

Taken together, these practices "create insurmountable and artificial barriers for Qualcomm's rivals, and thus do not further competition on the merits" according to the District Court's opinion.

The Ninth Circuit vacated the District Court's judgment and reversed the permanent, worldwide injunction against Qualcomm, in a decision by Judge Callahan, joined by Circuit Court Judge Rawlinson and District Court Judge Murphy sitting by designation.  The Court framed its decision on the difference between "anticompetitive behavior, which is illegal under federal antitrust law, and hypercompetitive behavior, which is not" (emphasis in opinion).  After setting forth the legal predicate for antitrust violations (for example, that "[w]hereas § 1 of the Sherman Act targets concerted anticompetitive conduct, § 2 targets independent anticompetitive conduct," citing Am. Needle, Inc. v. Nat'l Football League, 560 U.S. 183 (2010) (emphasis in opinion)) the Court addressed the District Court's application of these principles to Qualcomm's business practices.  Importantly in this regard, the Court stated that "novel business practices—especially in technology markets—should not be "conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use," citing United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (emphasis in opinion), and Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 J. Comp. L. & Econ. 153, 167 (2010) ("Because innovation involves new products and business practices, courts['] and economists' initial understanding of these practices will skew initial likelihoods that innovation is anticompetitive and the proper subject of antitrust scrutiny").  The opinion credits the District Court with properly defining the relevant market ("the market for CDMA modem chips and the market for premium LTE modem chips") but faulted the Court for considering the impact of Qualcomm's business practices on the "much larger market of cellular services generally" which included OEMs, Qualcomm's customers rather than their competitors.  Even if the District Court had properly identified "harms" to these parties, according to the opinion, these are not antitrust violations "because they do not involve restraints on trade or exclusionary conduct in 'the area of effective competition'" citing Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018)).  The proper relevant market, according to the opinion, was modem chip sales not Qualcomm's licensing practices with OEMs, a distinction lost on the District Court because that Court believed Qualcomm's business practices to be "interrelated."  Rather than following the District Court's improper reasoning, the Ninth Circuit panel "reframe[d]" the issues to consider the effects of Qualcomm's business practices on the CMDA and LTE chip markets.

The opinion quickly dispensed with one basis for the District Court's decision, that Qualcomm owed an "antitrust duty" to license its patents to "its direct competitors in the modern chip markets" under a Supreme Court-defined exception set forth in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).  The opinion cites in this regard copious precedent to the effect than a business is under no obligation to "deal under the terms and conditions preferred by [a competitor's] rivals," quoting Pac. Bell Tel. Co. v. linkLine Commc'ns, Inc., 555 U.S. 438, 457 (2009), and can "freely []exercise his own independent discretion as to parties with whom he will deal," quoting United States v. Colgate & Co., 250 U.S. 300, 307 (1919).  While recognizing the exception under the Aspen Skiing Co. case relied upon by the District Court, the panel held that this exception did not apply based on the absence of anticompetitive conduct here underlying the result in Aspen.  The Ninth Circuit found clear error in the factual underpinnings of the District Court's opinion.  The panel also recognized that Qualcomm's business strategy was a response to the effects on the application of the patent exhaustion doctrine occasioned by the Supreme Court's Quanta Computing decision rather than an effort to "sacrifice short-term benefits in order to obtain higher profits in the long run from the exclusion of competition" as in Aspen Skiing.  And the consistency with which Qualcomm implemented its business practice, not singling out any particular competitor, was also a determinative factor for the panel in distinguishing Qualcomm's behavior from the anticompetitive behavior that resulted in the Aspen Skiing decision ("Qualcomm applies its OEM-level licensing policy equally with respect to all competitors in the modem chip markets and declines to enforce its patents against these rivals even though they practice Qualcomm's patents (royalty-free)").

The Court also rejected the FTC's "fallback" position that Qualcomm was guilty of antitrust violations under § 2 of the Sherman Act, because according to the Court the alleged anticompetitive activity was directed at Qualcomm's OEM customers rather than its competitors and was "chip-supplier neutral" because Qualcomm collects them from all OEMs that license its patents, not just "rivals' customers" (emphasis in opinion) and ignores Qualcomm's agreements wherein competitors are allowed to practice Qualcomm's patented SEPs "royalty-free" so long as they sell to licensed OEMs.  Finally in this regard, the Court reminds the FTC that "to make out a § 2 violation, the anticompetitive harm identified must be to competition itself, not merely to competitors," citing Microsoft (emphasis in opinion) and the FTC had not shown any such harm.

The opinion also cites (and the panel apparently swayed by) the several amici writing in support of Qualcomm (or at least in support of reversing the District Court's decision), including retired Federal Circuit Chief Judge Paul R. Michel and former FTC Commissioner Joshua Wright.

Next the Court reaches what it termed "the district court's primary theory of anticompetitive harm: Qualcomm's imposition of an 'anticompetitive surcharge' on rival chip suppliers via its licensing ["unreasonably high"] royalty rates" that are anticompetitive because "they raise costs to OEMs, who pass the extra costs along to consumers and are forced to invest less in other handset features."  The Circuit Court finds "no cogent theory of anticompetitive harm" that supports the District Court's conclusions.  Indeed, the panel believes that the District Court's decision "is premised on a misunderstanding of Federal Circuit law pertaining to the calculation of patent damages, it incorrectly conflates antitrust liability and patent law liability, and it improperly considers 'anticompetitive harms to OEMs' that fall outside the relevant antitrust markets."  The panel also thinks the decision also "fails as a matter of law and logic."  The misunderstanding of Federal Circuit patent damages law perceived by the Ninth Circuit involves the "the patent rule of apportionment" and the smallest salable patent-practicing unit ("SSPPU"), its decision supported by LaserDynamics, Inc. v. Quanta Comput., Inc., 694 F.3d 51, 67 (Fed. Cir. 2012), and an unpublished, district court case for the proposition that "the modem chip . . . 'is the proper [SSPPU]' in a cellular handset," citing GPNE Corp. v. Apple, Inc., No. 12- CV-02885-LHK, 2014 WL 1494247, at *13 (N.D. Cal. Apr. 16, 2014) (somewhat amusingly commenting in a footnote that that case had been presided over by Judge Koh).  The panel finds the District Court's analysis on this regard "fundamentally flawed" because "[n]o court has held that the SSPPU concept is a per se rule for 'reasonable royalty' calculations" but rather use it as a tool in jury cases for the benefit of the jury to avoid confusion.  The panel also cite Commonwealth Sci. & Indus. Research Org. v. Cisco Sys., Inc., 809 F.3d 1295, 1303 (Fed. Cir. 2015), as evidence that the Federal Circuit itself has rejected this test as being required for assessing damages, and further that "'[t]here is nothing inherently wrong with using the market value of the entire product,'" citing Exmark Mfg. Co. Inc. v. Briggs & Stratton Power Prods. Grp., LLC, 879 F.3d 1332, 1349 (Fed. Cir. 2018).  The panel also criticize the District Court and FTC for basing their characterization of the unreasonableness of Qualcomm's royalty structure on patent concepts (35 U.S.C. § 284) rather than antitrust principles.  And finally on this point the panel returns to the fundamental error that the harm identified by both is to Qualcomm's customers not its competitors, which is not a sound basis for an antitrust violation.

The Ninth Circuit also found this misapplication of the harm with regard to Qualcomm's "no license, no chips" practice for the same reason -- it was directed to OEMs rather than rival chipmakers.  The Court suggests the District Court's reasoning was completely backwards:  it found Qualcomm to have engaged in anticompetitive business practices by making SEP licenses contingent on chip purposes under its "no license, no chips" policy.  The panel states that anticompetitive behavior proscribed under the antitrust laws are the exact opposite:  "[i]f Qualcomm were to refuse to license its SEPs to OEMs unless they first agreed to purchase Qualcomm's chips ("no chips, no license")."  The panel explains:

This is because OEMs cannot sell their products without obtaining Qualcomm's SEP licenses, so a "no chips, no license" policy would essentially force OEMs to either purchase Qualcomm's chips or pay for both Qualcomm's and a competitor's chips (similar to the no-win situation faced by OEMs in [Caldera, Inc. v. Microsoft Corp., 87 F. Supp. 2d 1244 (D. Utah 1999)] (which the district court improperly relied upon).

The opinion closes by considering (and rejecting) the District Court's separate finding that Qualcomm violated both sections of the Sherman Act in signing an "exclusive supply" deal with Apple.  While the Ninth Circuit panel found "[t]here is some merit in the district court's conclusion that the Apple agreements were structured more like exclusive dealing contracts than volume discount contracts."  It did not find the requisite "actual or practical effect of substantially foreclosing competition in the CDMA modem chip market" required for this conduct to rise to an antitrust violation based on the facts regarding this deal adduced at trial (and indeed there was evidence to the contrary, inter alia, that Intel successfully competed with Qualcomm in supplying chips to Apple within one year of the objected-to Apple-Qualcomm supply agreement), and on this basis vacated the injunction imposed by the District Court.

The opinion concludes:

Anticompetitive behavior is illegal under federal antitrust law.  Hypercompetitive behavior is not.  Qualcomm has exercised market dominance in the 3G and 4G cellular modem chip markets for many years, and its business practices have played a powerful and disruptive role in those markets, as well as in the broader cellular services and technology markets.  The company has asserted its economic muscle "with vigor, imagination, devotion, and ingenuity."  [United States v. Topco Assocs., Inc., 405 U.S. 596, 610 (1972)].  It has also "acted with sharp elbows—as businesses often do."  Tension Envelope Corp. v. JBM Envelope Co., 876 F.3d 1112, 1122 (8th Cir. 2017).  Our job is not to condone or punish Qualcomm for its success, but rather to assess whether the FTC has met its burden under the rule of reason to show that Qualcomm's practices have crossed the line to "conduct which unfairly tends to destroy competition itself."  [Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993)].  We conclude that the FTC has not met its burden.

No doubt Qualcomm is gratified by this decision.  Experience and history show, however, that the FTC is persistent, and it is not unlikely that it will continue to press its case, either before the Supreme Court or though other agency action.

United States Patent and Trademark Office v. Booking.com B.V. (2020)

Supreme Court Rules That Booking.com Is Not Generic and Declines to Impose a "Nearly Per Se" Rule of Genericness for "Generic.com" Trademarks

By Eric R. Moran --

Today, the U.S. Supreme Court issued a much-anticipated opinion in a trademark case directed to what it means for a trademark to be generic, and hence not subject to registration, in United States Patent and Trademark Office v. Booking.com B.V.[1]  The question presented to the Court was whether an online business's addition of a generic top-level domain (i.e., ".com") to an otherwise generic term can create a protectable trademark.[2]  The Court declined to impose a per se rule on this question, as urged by the U.S. Patent and Trademark Office ("USPTO"), and instead held that "[w]hether any given 'generic.com' term is generic . . . depends on whether consumers in fact perceive that term as the name of a class or, instead, as a term capable of distinguishing among members of the class."[3]  Here, lower court determinations established that Booking.com was not generic.[4]

Background of the case:

Booking.com provides online travel reservation services under the Booking.com brand and via its website residing at the Booking.com domain name.[5]  Booking.com attempted to register four "Booking.com" trademarks with the U.S. Patent & Trademark Office, all incorporating the term "Booking.com."[6]  For each, a USPTO Examining Attorney refused registration, finding the marks generic for "an online reservation service for travel, tours, and lodgings."[7]  After the Trademark Trial and Appeal Board affirmed the refusals, Booking.com appealed to the U.S. District Court in the Eastern District of Virginia.[8]

Because Booking.com appealed the USPTO decision to the District Court, it was allowed to submit new evidence, including evidence of consumer perception of the Booking.com mark.  The District Court, "[r]elying in significant part" on this new evidence, "concluded that 'Booking.com'—unlike 'booking'—is not generic."[9]  Consumers, according to the District Court, primarily view Booking.com as being descriptive of booking services available at the Booking.com domain name, rather than as referring to a genus (or generic term) for those services.[10]  The District Court also found that the term has "acquired secondary meaning as to hotel-reservation services" and was registrable as a trademark.[11]

The USPTO appealed the District Court's determination on the issue of genericness to the Court of Appeals for the Fourth Circuit, which found no error.  In so doing, "the appeals court rejected the PTO's contention that the combination of '.com' with a generic term like 'booking' 'is necessarily generic.'"[12]

The U.S. Supreme Court granted certiorari to address "whether there is a nearly per se rule against trademark protection for a 'generic.com' term."[13]

The Court's opinion:

Justice Ginsburg wrote the opinion for the Court and began by identifying issues on which the parties agreed.  As an initial matter, the Court noted that a generic term is the "name of a class of products or services" and is "ineligible for federal trademark registration" because it cannot serve to distinguish one party's goods or services from another party's goods or services.[14]  Here, the parties did not dispute that "booking" is generic for "hotel-reservation services."[15]

The parties also did not dispute that:

• "a 'generic' term names a 'class' of goods or services, rather than any particular feature or exemplification of the class";
• "for a compound term, the distinctiveness inquiry trains on the term's meaning as a whole, not its parts in isolation";
• "the relevant meaning of a term is its meaning to consumers"; and
• "[e]ligibility for registration . . . turns on the mark's capacity to 'distinguis[h]' goods 'in commerce.'"[16]

The Court then addressed the proper test for precluding a generic term from registration—an issue that was discussed at length during briefing and at oral argument.  Although the Court declined to rule on that issue, it seemed to endorse Booking.com's position that the proper test was found in 15 U.S.C. § 1064(3):

The primary significance of the registered mark to the relevant public . . . shall be the test for determining whether the registered mark has become the generic name of goods or services.[17]

In doing so, the Court appeared to reject the USPTO's position that the primary significance test should be confined to potential cancellation of registered marks (as the test is found in that particular section of the Lanham Act).

In any case, the Court found that consumer perception prevails, and "whether 'Booking.com' is generic turns simply on whether that term, taken as a whole, signifies to consumers the class of online hotel-reservation services."[18]  In finding that it does not, the Court noted that we would not expect consumers "to understand Travelocity—another such service—to be a 'Booking.com'" or that "a consumer, searching for a trusted source of online hotel-reservation services, could ask a frequent traveler to name her favorite 'Booking.com' provider."[19]  "Because 'Booking.com' is not a generic name to consumers, it is not generic."[20]

The Court went on to refute a number of the USPTO's arguments, including the comprehensive, per se rule urged by the USPTO because it is inconsistent with the USPTO's own past practices of allowing registration of other "generic.com" marks.

In doing so, the Court found one of main cases cited by the USPTO, Goodyear's India Rubber Glove Mfg. Co. v. Goodyear Rubber Co., 128 U.S. 598 (1888), inapplicable to Booking.com.  The USPTO argued that Goodyear's supported the position that "a generic corporate designation added to a generic term does not confer trademark eligibility."[21]  The Court, however, stated that:

A "generic.com" term might also convey to consumers a source-identifying characteristic: an association with a particular website.  As the PTO and the dissent elsewhere acknowledge, only one entity can occupy a particular Internet domain name at a time, so "[a] consumer who is familiar with that aspect of the domain-name system can infer that BOOKING.COM refers to some specific entity."[22]

Accordingly, the Court instead limited Goodyear's application to the proposition that: "A compound of generic elements is generic if the combination yields no additional meaning to consumers capable of distinguishing the goods or services."[23]

The Court also addressed the USPTO's argument that exclusive rights to the Booking.com mark would hinder Booking.com's competitors from using the term "booking."  According to the Court, however, such concerns arise from the protection of any descriptive mark, and such protection cannot preclude descriptive uses of descriptive terms.[24]  In addition, a likelihood of confusion analysis will assess the strength or weakness of descriptive marks and whether confusion is likely in light of the scope of protection afforded such marks.  Further, if a mark exists in a "crowded field" of similar marks, "consumers 'may have learned to carefully pick out' one mark from another."[25]

Accordingly, the Court declined to adopt a rule that a generic term combined with a ".com" necessarily yields a generic composite.  And in so doing, the Court declined to adopt a position that would "open the door to cancellation of scores of currently registered marks."[26]

Justice Sotomayor authored a concurring opinion emphasizing points related to the use of survey evidence and clarifying that the question before the Court was not whether the District Court erred in finding that Booking.com was not generic.[27]

Justice Breyer authored a dissenting opinion in which he would have held that "generic.com" marks are necessarily generic because they consist simply of a generic term and a corporate designation.[28]  The majority's holding, according to Justice Breyer, risks a "proliferation of 'generic.com' marks" that would grant monopolies over easy-to-remember domain names to their owners.[29]  Such a result would, he continued, "tend to inhibit, rather than to promote, free competition in online commerce."[30]

United States Patent and Trademark Office v. Booking.com B.V. (2020)
Opinion by Justice Ginsberg, joined by Chief Justice Roberts and Justices Thomas, Alito, Sotomayor, Kagan, Gorsuch, and Kavanaugh; concurring opinion by Justice Sotomayor; dissenting opinion by Justice Breyer

[1] United States Patent and Trademark Office v. Booking.com B.V., No. 19-46 (S. Ct. June 30, 2020).
[2] See Petition for a Writ of Certiorari.
[3] Opinion at 11.
[4] Id. at 1.
[5] Id. at 4.
[6] Id.
[7] Id.
[8] Id. at 5.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Concurrence at 1.
[14] Opinion at 1, 4.  As set forth by the Court, "Distinctiveness is often expressed on an increasing scale: Word marks 'may be (1) generic; (2) descriptive; (3) suggestive; (4) arbitrary; or (5) fanciful.'"
[15] Id. at 1.
[16] Id. at 6.
[17] Id. at 6-7 and n.3.
[18] Id. at 7.
[19] Id.
[20] Id.
[21] Id. at 8.
[22] Id. at 9.
[23] Id. at 10.
[24] Id. at 12.
[25] Id. at 12.
[26] Id. at 14.
[27] Concurrence at 1-2.
[28] Dissent at 5.
[29] Id. at 13.
[30] Id.